Premium content is any digital or otherwise intangible product sold to consumers. Examples of premium content may include, but are not limited to articles, eBooks, sound files, music, interactive applications, software, games, video files, movies or other digital products. Other examples of premium content may include, but are not limited to, live comedy shows, movie screenings, entertainment, educational lectures, art shows, animal shows, museum displays and other intangible products. The majority of premium content is available over the internet. Furthermore, many digital or otherwise intangible products which are not available for sale automatically qualify as premium content when the products are made available for sale.
Generally, the term “content” refers to any digital or otherwise intangible product. The more specific term “free content” refers to any digital or otherwise intangible product distributed at no-cost. Comparatively, premium content is a type of “content” for which publishers require compensation. Therefore, publishers require consumers to pay for premium content. This difference explains why premium content, generally, is of a higher quality than free content.
Despite the theoretical efficiencies offered by the internet, current payment methodologies for the sale of premium content are inferior to current payment methodologies for the sale of tangible products. This contrast is the result of an economic property which does not generally apply to tangible products, but does generally apply to premium content.
This property is a practically non-existent variable cost, i.e., no significant cost to transfer premium content from source to consumer. For example, the required variable costs for distributing premium content from a web server to an internet user's personal computer are virtually zero. In contrast, the variable costs for distributing physical products from a manufacturer's warehouse to a consumer's home are relatively high.
The lack of variable costs for publishers represents an opportunity for consumers to use a variety of premium content flexibly within the context of their individual lifestyles. Particularly, the lack of variable costs for publishers may enable a consumer to freely watch movies, listen to music, view pictures, play games, interact with software or engage in other activities made possible by the internet for as long as the consumer likes, on the devices the consumer prefers, and at times which are most convenient to the consumer.
Unfortunately, consumers are unable to take full advantage of hardware devices, technological developments and economic features of premium content because the currently available systems for purchasing premium content are overly burdensome. Due to the lack of an efficient payment system, publishers have little incentive to make premium content available to consumers.
One explanation for the lack of publisher incentive to make premium content available is the prevalence of credit card processing rates which are costly to premium content publishers. The average cost for processing a credit card payment is approximately 2.2% plus 25 cents. Therefore, if a premium content publisher sells an article for thirty cents, the publisher only receives 4 cents.
Several attempts have been made to resolve this credit card processing issue. These attempts include the development of payment methodologies such as the micropayments methodology, the high-price methodology, and the subscription methodology.
The micropayments methodology has been embraced because it attempts to value individual pieces of premium content at fair market values. As an overview, micropayments are small transactions often for cents or fractions of cents, which are paid for individual premium content items. Some examples of micropayment transactions for premium content include purchasing a concise 5-minute movie clip detailing the Peloponnesian War for 18 cents, sending an electronic birthday card for 9 cents, playing a multiplayer game for 31 cents, reading six stock recommendations from top-investors for 26 cents and listening to one hour of satellite radio for 45 cents.
Most emerging micropayment companies have offered a service called aggregated payment processing. Aggregated payment processing involves aggregating the micropayments for multiple publishers into a larger credit card charge on a per-customer basis. For example, if the previously mentioned premium content items are purchased through a micropayments provider implementing aggregated payment processing, the micropayments provider places one charge of $1.29 on the consumer's credit card instead of placing five individual charges.
Despite the theoretical efficiencies of micropayments, the payment methodology is inconvenient for consumers. Before the consumer reads any article, views any image, hears any sound file or watches any video, the consumer must make the decision to buy or not to buy the premium content. Therefore, one problem with the micropayments methodology is that it requires the consumer to formulate many decisions on a minute-by-minute basis, resulting in consumer inconvenience. Consumer inconvenience includes the consumer's cost of time and anxiety associated with evaluating premium content, forming a buying decision and completing a purchase.
Some micropayments companies have developed systems which attempt to respond to the issue of consumer inconvenience by not requiring customers to actively formulate consumer decisions. Instead, the companies either charge customers a flat rate for each piece of premium content or charge customers prices which are preset by publishers. Following this method, customers are charged for each piece of premium content that customers access but are not asked to actively approve each sale. This payment methodology creates what has been termed “a double-standard of value” as discussed by Clay Shirky in his 2000 essay, “The Case Against Micropayments.” A double standard of value occurs when publishers collect payment for premium content but imply that the cost of the premium content is too slight for customers to contemplate purchasing the premium content. This procedure further confuses customers and only increases consumer inconvenience.
Since the micropayment methodology is not practically feasible, a surprisingly high number of publishers have decided to charge for premium content on a per-item basis by adopting the high-price methodology. The high-price methodology is a solution where premium content publishers charge exceptionally high prices. The theory for the high-price methodology is that increased prices will make-up for reduced consumption. For instance, a publisher may face a situation where the publisher spends $100,000 in fixed costs on producing and marketing an eBook. This publisher would break-even, disregarding credit card processing fees, by charging ten cents to each of its one-million estimated customers. Instead of charging ten cents per eBook, the publisher charges ten dollars per eBook. By charging ten dollars, the publisher will break-even, disregarding credit card processing fees, by selling to only ten thousand customers.
The high-price methodology typically fails for multiple reasons. One reason is that the customer demand curve for premium content, i.e., the relationship between the price of premium content and how many customers will buy premium content for that price, is a non-linear function. For example, if a price of ten cents attracts one million customers, a price of ten dollars is unlikely to attract ten thousand customers. Moreover, demand for most premium content tends to be very price elastic.
Another reason why the high-price methodology fails is the increase in purchase risk for customers. Purchase risk is the risk that a customer's purchase will not meet expectations. This purchase risk involves the potential to lose time or money. For instance, when a customer purchases a disappointing eBook, the customer generally may not return it, as the eBook is a digital product. Therefore, the customer is forced to either read an eBook which does not meet expectations and lose time or not read the eBook despite paying for it and lose money.
The majority of publishers have rejected the micropayments and high-price payment methodologies as inferior revenue models. Instead, the publishers sell premium content via the subscription payment methodology. The sale of a subscription generally involves receiving a fixed-fee payment from a customer in exchange for unlimited access to a single type of premium content over a fixed period of time. For example, a music subscription may include unlimited access to two million songs. Here, for $20 per month, a customer may listen to as many of the two million songs as the customer would like, for as long as the customer would like during the month.
This music subscription is a good deal for a heavy user of the service. However, this music subscription is expensive for a casual music listener. For example, if a customer spends two hours per day listening to music, that person is paying roughly 33 cents per hour for music according to this example. On the other hand, if a customer spends two hours per month listening to music, that customer is paying $10 per hour for music. All else being equal, the music subscription is a much better value for the former customer. More generally, all subscriptions work in a similar manner. The subscriptions are good deals for frequent customers and poor deals for infrequent customers.
Furthermore, the wide variety of subscriptions available on the internet creates additional problems for customers who may be interested in premium content from more than one subscription. For example, an average customer may desire to access premium content from an eBook subscription, an audio book subscription, a nutrition and fitness article subscription, three news article and video subscriptions, two music subscriptions, a satellite radio subscription, three arcade game subscriptions, two media-driven game subscriptions, three movie subscriptions, an investment advice subscription, two research service subscriptions and three dating services system subscription packages over a period of time. In this example, an average customer must pay for 23 different subscriptions as though the customer is a heavy user. Moreover, the customer must also complete 23 registrations and decide to purchase each of the subscriptions, resulting in significant consumer inconvenience.
These problems explain why approximately only 12% of internet users buy premium content on the internet, according to the Online Publishers Association's 2005 report. Moreover, these problems characterize a dysfunctional market, where many internet users are interested in premium content, but very few actually pay for it.
Some in the industry have argued that internet users simply do not want to pay for premium content. Instead, publishers are urged to adopt advertising subsidies while making high-quality content available as free content. However, advertising is only a viable option in limited circumstances. More precisely, only publishers who can connect contextual advertisers with highly targeted customers can cover their fixed costs.
The refusal of traditional publishers to make content available over the internet for free demonstrates the wide variety of high-quality content which could potentially be available to customers if a functional payment methodology, rather than a standalone advertising model, was known. Moreover, when consumers do not pay for premium content, publishers have less incentive to acquire, finance or develop more or better premium content.
Currently, the premium content industry suffers from a problem termed a double-coincidence of wants. A double coincidence of wants occurs where a market functions only when both parties, co-incidentally, want each other's products, in the acceptable quantities, at the same time, according to agreeable terms. Historically, the double coincidence of wants problem is only known to have appeared to this extent in barter economies.
When the double coincidence of wants problem appeared in barter economies, money was invented to help solve this problem. The invention of money as a medium of exchange sparked increased trade, allowed for specialization, lead to capitalism and industrialization and lead finally to today's consumer economy. The invention of money also lends insight into the current crisis facing the premium content industry, which is a double-coincidence of wants problem. Publishers want money and consumers want to obtain the most satisfaction from their time. Using money as a medium of exchange is overly time-consuming, thus, self-defeating to consumers. Therefore, the seemingly most-efficient micropayments methodology is a dysfunctional paradox. Also, many alternatives, whether the alternatives fit under the high-price or subscription payment methodologies, allow for sales of premium content but only to consumers who are not price-conscious or who are heavy users of individual pieces or types of premium content coincidentally.
Most internet users are dissatisfied with the current methodologies available for purchasing premium content. The result is substantially less economic activity. Moreover, some internet users steal premium content. This issue would occur less frequently if a payment solution for premium content existed that would function much like money functions for tangible products, but solves the double coincidence of wants problem facing the premium content industry.
Therefore, a need exists for another or alternative medium of exchange in addition to money. Additionally, a need exists for a premium content access and payment method that eliminates the need for numerous consumer decisions by minimizing transaction costs such as consumer inconvenience. Furthermore, a need exists for a method that increases total compensation publishers receive for premium content. Desirably, the variety of premium content includes an extensive selection of high-quality articles, images, music, video and interactive applications serving a wide variety of purposes and interests that are provided by a wide variety of publishers.